UK: Fund Equalisation Arrangements - Have You Made Your Notification?

As of 27 May 2012, all funds that are currently part of the UK Offshore Funds Reporting regime are obligated to confirm with the UK tax authorities (HMRC) their intended equalisation arrangements.

Failure to inform HMRC of their preference will result in the fund being treated as not operating equalisation arrangements and the fund manager will be obliged to make equalisation adjustments based on reported income.

This obligation arises from the amendments made to the Offshore Funds (Tax) Regulations in May 2011 that addressed flaws in the original legislation which, by general consensus, failed to properly deal with the issue of equalisation and its effect on both participants and fund administrative procedures. The amendments have introduced a range of different options available to reporting funds relating to the way in which they deal with equalisation from a tax reporting perspective.

For funds that have joined the regime since the introduction of the amended regulations, i.e. after 27 May 2011, a statement will have already been made in the application process regarding the intended equalisation policy. However, for funds that joined the regime before this date, the fund managers will have until 27 May 2012 to notify HMRC of which option they wish to employ going forward. It is imperative for such funds to fully consider the available options and to make a choice that is most appropriate to the specific arrangements and existing reports. Once a decision has been made the fund is only able to change its equalisation policy in certain prescribed circumstances.

Smith & Williamson provide tax reporting services for offshore funds in the UK and through our co-operation with the WTS alliance in Austria, Germany, Italy and Switzerland.

Please note that action is required from funds that joined the named tax regime before 27 May 2011. They need to notify HRMC before 27 May 2012 with regard to the income equalisation method they intend to apply going forward.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.